An unprecedented financial phenomenon, variations in the price of bitcoin raise many questions about the tax treatment of profits and losses generated by investors.
Bitcoin is a virtual currency (or cryptocurrency) created in 2009. It makes it possible to buy goods and services, and can also be traded on online platforms against other monetary currencies (euro, dollar, yen, etc.) outside the traditional banking networks and in a decentralized manner.
Are bitcoin sales taxable?
In defining the personal income tax system, the first difficulty is identifying the very nature of this income: should the resale gain be assimilated to a foreign exchange gain, a capital gain on a security, an income from professional activity?
In the absence of legal clarification, and in order to prevent the risk of tax evasion, the administrative doctrine took the initiative in 2014 to outline the tax regime applicable to the acquisition of bitcoin for resale purposes (BOI-BIC -CHAMP-60-50).
According to the BOFiP (the French administrative doctrine), two scenarios should be considered:
- the purchase-resale of bitcoin on a regular basis and for its own account is a commercial activity; the revenues are then to be declared in the category of industrial and commercial profits (“BIC”).
- Occasional purchase-resale falls under the category of non-commercial profits (“BNC”).
The criteria for the regular or occasional exercise of the activity result from a case-by-case examination taking into account, in particular, the periods separating the dates of purchase and resale, the number of bitcoin sold and the conditions of their acquisition.
In practice, each year, net income (including profits and losses) is subject to the progressive income tax schedule as well as to social security contributions (enhanced by the 2018 Social Security Financing Act).
As this incomes is classified as BIC or BNC, the taxpayer has the possibility of benefiting from the “micro” regime: below a certain threshold of annual turnover, he or she has fewer accounting and reporting requirements and a lump-sum allowance on the resale value. In application of the 2018 Finance Act, new thresholds—doubled—will apply to the computation of income tax for 2017.
A comparison must, however, be made with the real regime, which retains as a taxable basis the capital gain (resale value minus purchase value) and not the resale value.
It can be observed that the legislator did not intervene on the subject of the taxation of bitcoin, even though the creation of a flat tax of 30% on most savings income as of 1 January 2018 could have been the occasion to do so.
In the case where the bitcoin exchange is exercised on a non-professional basis, the one-year deficit can be charged to profits from similar activities in the same year or within the six years thereafter. In this respect, in order to be able to report a deficit, the person concerned must be subject to a real profit scheme, which excludes micro regimes.
Reporting your profits
In the presence of such administrative doctrine, a French tax resident incurs a risk if he or she does not report his or her profits from the resale of bitcoin.
His or her profits are taxable, regardless of the nature of the assets or securities against which the bitcoin is exchanged. Taxation therefore results from the exchange of bitcoins against euro, but also from the purchase of goods paid for using bitcoin (in this case, the profit must be determined by reference to the value in euro of the property acquired).
On the other hand, keeping your cryptocurrencies in a virtual portfolio does not trigger taxation.
Any failure to report this income would expose the individual to a tax adjustment, without prejudice to late payment interest and an increase of up to 80% in the event of discovery of a hidden activity.
As regards the risk of audit in this area, it is highly likely that the tax authorities will pay attention to this new type of income, in a context that is increasingly favourable to the exchange of information between countries.
This interest is explained not only by the considerable tax revenues it represents, but also by the high risks of money laundering facilitated by these transactions.
According to the administrative doctrine, profits from the sale of bitcoin must be reported and taxed as business income. They are not concerned by the new French flat tax.